Chrysler Workers Worry About Benefits, Jobs
DETROIT (AP) - Billy Boyd, a Chrysler worker for almost 34 years, is so skeptical about Monday's sale announcement that he might not stick around much longer.
Like many of Chrysler's roughly 80,000 employees, Boyd, 51, a machine operator at the automaker's Kenosha, Wis., engine plant, isn't sure what to make of the unusual deal. Parent company DaimlerChrysler AG is paying as much as $650 million to walk away from Chrysler by turning over the keys to his company to Cerberus Capital Management LP, a New York private equity firm.
"It sounds good," he said before work Monday afternoon. "Are they buying us to help us out or to suck the blood? It's kind of scary."
At many Chrysler plants, workers also worried about what it will cost them as word spread about the $7.4 billion sale. Many are fearful of private equity buyers, which in the past have sold off companies in pieces to make a fast buck.
The skepticism remained even after Cerberus Chairman John Snow, a former U.S. Treasury Secretary, tried to reassure workers that his company would be with Chrysler for the long haul, and that it had faith in the company's management.
And it continued after Chrysler Group Chief Executive Tom LaSorda said there are no major plans are under discussion to cut jobs beyond the 13,000 announced in a February restructuring plan.
The deal, which severs a stormy nine-year relationship between what was once Daimler-Benz AG and Chrysler, also renewed workers' fears about pensions, health insurance and what life will be like under the new owner. Daimler bought the company in 1998 for $36 billion in a marriage designed to create the ultimate global automotive powerhouse.
United Auto Workers President Ron Gettelfinger said Monday that after his pitch to keep Daimler and Chrysler together failed, it became clear that Cerberus was the best option for workers.
"So once that decision's been made, then you've got to deal with the cards that you're dealt," he said Monday afternoon, adding that he did not think the sale would have an impact on upcoming national contract talks.
Buzz Hargrove, president of the Canadian Auto Workers union, which represents about 11,000 Chrysler workers, said he had "enormous concerns," noting that many private equity groups have a long-standing history of "job cuts as opposed to job creation."
The sale also raised questions of what car buyers should do, although one industry analyst said consumers had little to fear from the company that makes Jeeps, Chryslers and Dodges.
Jeremy Anwyl, president of the Edmunds.com automotive Web site, said warranties and spare parts requirements must be honored by law.
"From a consumer perspective, in the practical sense, there's no real downside. I think consumers are pretty well protected," he said.
Consumers, he said, may benefit from the deal because Chrysler will have more money to invest in its products.
Investors also liked the news. DaimlerChrysler's shares rose $2.12, or 2.6 percent, to close at $84.12. They have traded in a 52-week range of $45.98 to $84.90.
Industry analysts said the likelihood that Cerberus would cut more jobs is low, but many said the company would be far tougher at the bargaining table when talks between the Detroit Three automakers begin this summer.
Gerald Meyers, a former chairman of American Motors Corp. who now teaches leadership at the University of Michigan, said Cerberus will need concessions from the UAW to turn a profit on its investment, something that may be difficult.
"I think their hopes of negotiating with the UAW are at best speculative," he said. "Ron Gettelfinger is a very tough and smart and well-educated negotiator. He knows he holds the keys to this kingdom. I think there are going to be some difficult days in this upcoming negotiation."
Cerberus and Chrysler, he said, likely will set the pattern for the other two Detroit automakers, Ford Motor Co. and General Motors Corp.
Meyers and other industry observers said it's likely that Cerberus will hold onto the money-losing Chrysler long enough to turn it around, then take it public again to make a handsome, fast profit.
"That's their business, to get their hands on companies that are faltering, undervalued, clean them up and then take them back public again," Meyers said. "You can expect that's what they're going to try to do with Chrysler."
Yet Cerberus' Snow said at the news conference that he and his company respected organized labor.
"I think Cerberus has a good record of working successfully with companies that are organized and we respect the role of organized labor and we greatly appreciate the support the UAW has given to this transaction," he said.
The sale showed that the maker of the upscale Mercedes brand of cars had given up on an alliance that was supposed to produce global cost savings and improve both companies' vehicles.
Instead, Daimler found itself, like GM and Ford, battered by rising pension and retiree health costs in the United States as Toyota and other Asian manufacturers won the hearts of U.S. consumers with what many view as more reliable, fuel-efficient models.
So anxious was Daimler to end the trans-Atlantic tie up that it could be on the hook to pay as much as $650 million - in exchange for being absolved for $19 billion in retiree health care costs that will be the responsibility of the new Chrysler owners.
The deal works this way: Cerberus will invest $5 billion in the new Chrysler's automotive operations, $1.05 billion in Chrysler's financial arm and pay $1.35 billion to DaimlerChrysler. But the German automaker agreed to absorb $1.6 billion in restructuring-related costs and loan the new company $400 million. Depending on whether the loan is repaid, its out-of-pocket costs could ultimately total $650 million.
Cerberus has steadily been building strength in the automobile business. It led a consortium that bought a majority stake last year in General Motors Acceptance Corp., the financial arm of GM, and planned to invest in ailing auto parts giant Delphi Corp.
Daimler will continue to work with Chrysler on drive systems, purchasing, sales and financial services outside North America.
The UAW's endorsement was a shift from earlier this year, when Gettelfinger warned that a private equity buyer would "strip and flip" the company by selling it off in pieces.
The deal, which is to be completed by the third quarter, probably will reduce Daimler's overall profit by as much as $5.4 billion for 2007, the company said. It still must be approved by Daimler's supervisory board, but that is seen as a formality.
Snow said that under Chrysler's leadership, the company's quality and productivity have risen and it has a variety of new products that will be well-received in the marketplace.
In addition to Cerberus, billionaire investor Kirk Kerkorian's Tracinda Corp. and Blackstone Group, a private equity firm, were among those interested in Chrysler, along with Canadian auto parts maker Magna International Inc. and General Motors Corp. 617
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